EARNINGS PREVIEW: Refining woes likely to limit US oil majors

TAKING THE
PULSE: The top three US oil companies are expected to
post higher earnings for the fourth quarter of 2011 than in the
same period of 2010, driven mainly by gains in oil prices.

But some of those gains are expected to be offset by weak
refining results and low natural-gas prices.

Earnings for the US major oil companies "won't be immune
from a shortfall in their refining operations and the weakness
in the North American gas market," said Paul Cheng, an analyst
with Barclays Capital, in a research note.

In the fourth quarter, natural gas traded at an average of
$3.5 per million British thermal units, below the $4/MMbtu it
traded at in the same period of 2010.

US oil prices rose steadily during the quarter while fuel
demand has been flat, a combination that has eroded refining margins.

Deutsche Bank cut its fourth-quarter estimates for all
integrated-oil companies, saying its expects weak downstream
results to hit their earnings.

COMPANIES TO WATCH:

ConocoPhillips - reports Wednesday, Jan. 25

Wall Street expectations: Analysts expect the Houston
company to report earnings of $1.94 a share on revenue of
$40.56 billion for the fourth quarter. A year ago,
ConocoPhillips earned $1.32 a share on revenue of $51.73
billion.

Key issues: ConocoPhillips is expected to
provide analysts an update on its plans to split into two
independent energy firms in the second quarter. Recently, it
named management teams for Phillips 66, the refining company,
and ConocoPhillips, the oil producer and explorer, but it still
needs final regulatory approval.

Analysts will be interested to know the status of the
marketing process for the two refineries the company has put up
for sale. Specifically, they are interested in how much the
company expects to fetch for its Alliance Refinery in Louisiana and a
confirmation that it is likely to demolish its Trainer refinery in Pennsylvania if it
doesn't find a buyer by March.

Analysts also are likely to ask about the status of the
company's arbitration claim against Venezuela for the 2007
expropriation of its assets and about its plans to develop the
vast amount of leases it recently acquired in the US Gulf of
Mexico deepwater.

Chevron - reports Friday, Jan. 27

Wall Street expectations: Analysts expect the San
Ramon, Calif., company to report earnings of $3.10 a share on
revenue of $71.58 billion, compared with earnings of $2.44 and
revenue of $51.85 billion a year earlier.

Key issues: The second-largest US oil company by market
capitalization behind ExxonMobil signaled that its
fourth-quarter earnings would be lower than its third-quarter
earnings due to weak refining margins and the impact of
currency fluctuations.

Analysts are likely to query company executives on why the
company's refining arm--which in the third quarter made $1.5
billion in profit--is expected to be at a break-even level in
the fourth quarter. The company said in its interim update
Wednesday that reduced profits margins at its refineries in the
US Gulf coast and maintenance of two large refineries
hurt its bottom line in the fourth quarter.

Analysts are also likely to ask for the company's strategy
to fight a recent legal setback in the environmental lawsuit it faces in
Ecuador. An appeals court upheld this month a $18 billion
ruling against Chevron for alleged contamination in Ecuador's
Amazon region. The company still could file another appeal in a
higher court, but plaintiffs are getting ready to try to
enforce the verdict in countries where the company has assets
as Chevron doesn't have operations in the South American
nation.

ExxonMobil - reports Tuesday, Jan. 31

Wall Street expectations: Analysts polled by Thomson
Reuters, on average, expect the Irving, Texas-based
company to report earnings of $2.08 a share for the fourth
quarter on revenue of $112.16 billion. A year earlier, Exxon
Mobil earned $1.85 a share on revenue of $105.19 billion.

Key issues: Exxon is expected to report
higher year-over-year earnings driven by higher oil prices, but
the world's largest publicly owned oil company's results are
expected to be limited by low natural-gas prices and sluggish
refining results, according to
Raymond James.

Analysts are likely to ask Exxon about the ultimate amount
of money it expects to receive from Venezuela for assets the
government of President Hugo Chavez nationalized in 2007. The
company recently won a $908 million award from an arbitration
panel, which was significantly lower than the $7 billion it
reportedly was seeking in compensation.

Venezuela's national oil company has said it will pay Exxon
a total of $255 million - after subtracting existing debt -
over the next 60 days. Exxon awaits the results of a second
arbitration claim.

Analysts also are likely to ask Exxon about its view on
natural-gas prices, which reached their lowest point in almost
three years this week. The company paid $25 billion in 2010 to
acquire natural-gas producer XTO, arguing prices for the
commodity would rise over the long term.

(The Thomson Reuters estimates and year-earlier
results may not be comparable because of one-time items and
other adjustments. The estimates may change before companies
report their results.)

-- Dow Jones Newswires

Have your say

All comments are subject to editorial review.
All fields are compulsory.